Mark's Market Intel

'Investing in Nickel' on Straight Talk with Pat Bolland (video)


Mark Lackey talks with Pat Bolland about the market for uranium and state of the world's nuclear power, three years after Japan's Fukushima accident, on Straight Talk’s Noon-Hour, Sun News Network – video available online now.

Mark favours sulphide nickel projects, over laterite, as well as North American jurisdictions for stability and infrastructure; his picks were Pure Nickel Inc. (TSXV: NIC), Royal Nickel Corporation (TSX: RNX) and Victory Nickel Inc. (TSX: NI).


Counting Nickels

The price of nickel is trading at US$8.06/lb today on the NYMEX. At the start of this year the price of nickel was trading at US$6.00/lb The price of nickel rose from US$5.00/lb in 2004 to a peak of just over US$22.00/lb in 2007 and dropped to US$4.00/lb in January 2009 before recovering to US$12.00/lb in 2011. The price volatility has resulted in trading opportunities for investors in the nickel equities.

At present inventories of nickel have been high on a historical basis as supply in last two years has outpaced demand. We expect that over the next two to five years that trend will be reversed. We are projecting nickel prices to rise to US$8.50/lb by the end of 2014, increase to US$10.00/lb by the end of 2015 and reach US$12.00/lb by the end of 2016.

We are expecting that demand increases from China will be a major factor behind the rising nickel prices. As we have pointed out in recent weeks China's steel industry is moving to more stainless steel from carbon steel and is producing more specialty alloys which require more nickel. In addition, as 20 million individuals continue to move every year from the rural areas to the cities in China the per capita consumption of nickel will continue to rise.

We also expect that the rate of increase in supply will slow down over the next three years relative to the last five years. Indonesia has almost tripled its share of world supply over the past five years but we expect this trend to slow down significantly in the next three years. On January 12th 2014 Indonesia banned the export of raw ore which could have a significant impact on the nickel market. If the ban holds then the nickel market will tighten next year. It is estimated by CRU Group that China has stockpiled a nine-month inventory in anticipation of an Indonesian ban taking place.

In addition Indonesia is implementing new investment laws that will require more local ownership in the mining sector which will reduce the amount of foreign investment in new projects, and over the past five years foreign investment was the key factor in the growth of nickel supply.

We are expecting that the high cost laterite projects are unlikely to be a major factor in nickel supply going forward. We prefer sulphide projects given that they are less capital and less energy intensive. In addition China is in the process of upgrading its stainless steel standards in order to prevent its steel from rusting out and this will require more nickel from sulphides. The goal is to start to replace nickel pig iron (NPI) which is a low grade ferronickel that has been used as a replacement for pure nickel in the production of stainless steel.

Companies in the sector that are not CHF clients that we follow include: Lundin Mining Corporation (TSX: LUN), Mindoro Resources Ltd. (TSXV: MIO), North American Nickel Corp. (TSXV: NAN), and Royal Nickel Corporation (TSX: RNX).